Bonds Sell Off as New U.S. Tariffs Upend Global Trade

Summary

WSJ What’s News: Bonds Sell Off as New U.S. Tariffs Upend Global Trade
Release Date: April 9, 2025
Host: Luke Vargas, The Wall Street Journal

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Overview

In this episode of WSJ What’s News, host Luke Vargas delves into the seismic shifts in global trade triggered by the United States' latest tariff imposition. As reciprocal tariffs take effect on nearly 100 countries, Vargas explores the multifaceted responses from America's trade partners, the ensuing economic repercussions, and the unexpected sell-off in U.S. Treasuries. Key insights are provided by Wall Street Journal reporters Kim McCrail in Brussels and Jason Douglas in Singapore, offering a comprehensive view of the global landscape reshaped by U.S. trade policies.

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US Tariffs Announcement

The U.S. has officially activated reciprocal tariffs on almost 100 countries, marking the highest tariff levels since before World War II. Notably, China faces tariffs of 104%, while Southeast Asian nations such as Vietnam, Laos, and Cambodia encounter increases exceeding 45%. These measures are expected to disrupt supply chains, suppress economic growth forecasts, and lead to higher consumer prices globally.

Notable Quote:
"Reciprocal US tariffs on nearly 100 countries are officially in effect as of a minute after midnight... tariffs up to 104%, moves likely to upend supply chains, dent growth forecasts and ripple through to consumers in the form of higher prices."
— Luke Vargas [00:46]

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Impact on Asian Economies

Reporter: Jason Douglas (Singapore)

Jason Douglas discusses the profound implications of the U.S. tariffs on Asian economies, highlighting fears of a recession as growth prospects dim. Central banks in New Zealand and India have already responded by cutting interest rates. Additionally, countries like South Korea, Japan, and Taiwan are rolling out support packages for their exporters to mitigate the adverse effects.

Key Points:

• Economic Recession Fears: Increased worries about potential recessions as growth outlooks deteriorate.
• Central Bank Responses: Interest rate cuts in New Zealand and India to stimulate economies.
• Support for Exporters: South Korea, Japan, and Taiwan implementing measures to support their export sectors.

Notable Quote:
"We're all trying to wrap our heads around what this means for globalization... recession fears are just getting bigger and bigger."
— Jason Douglas [02:06]

Douglas further elaborates on the projected decline in Chinese exports to the U.S., which could plummet by up to 50% due to the steep tariffs. The weakening of the Chinese yuan is also a significant concern, potentially signaling broader economic instability.

Notable Quote:
"We've seen some forecasts... Chinese exports to the US could drop by as much as half... the yuan is weakening."
— Jason Douglas [02:56]

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Impact on the European Union

Reporter: Kim McCrail (Brussels)

Kim McCrail provides an in-depth analysis of how the European Union (EU) is grappling with the U.S. tariffs. The EU faces a blanket 20% tariff across the board, with specific sectors like automotive and steel facing 25% tariffs. The EU is actively negotiating to mitigate impacts but maintains a firm stance with potential retaliatory measures.

Key Points:

• Sector-Specific Tariffs: 20% on general exports, 25% on autos and steel.
• Future Tariffs Threat: Potential tariffs on pharmaceuticals, significantly impacting countries like Ireland and Denmark.
• Negotiation Strategy: The EU employs a two-pronged approach, balancing concessions with the readiness to retaliate.

Notable Quotes:

"The US is an extremely important export market for Europe... the threat of future tariffs... is a huge threat to the outlook for Europe."
— Kim McCrail [03:42]

"The EU is really trying to pursue a two pronged path... you need to have a stick waiting."
— Kim McCrail [05:05]

McCrail also highlights the EU's strategic selection of American products to target, such as chewing gum and Harley Davidson motorcycles, while carefully excluding items like whiskey and American wines to avoid overly antagonizing key sectors.

Notable Quote:
"We've got peanut butter. Chewing gum is actually on the list... whiskey was on an original potential hit list... same for American wines."
— Kim McCrail [05:49]

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Comparative Responses: EU vs. Asian Economies

Douglas contrasts the EU's balanced approach with the more direct strategies of Asian economies. While the EU leverages both negotiation and retaliation, countries like Japan and South Korea are prioritizing quick trade deals, aiming to minimize disruptions under the security umbrella. In contrast, China adopts a hardline stance, continuing robust retaliatory measures against U.S. tariffs.

Notable Quote:
"If the EU is a carrot and a stick approach, then we have countries like Japan and South Korea... making a beeline to the White House... China thinks... it has a great big stick."
— Jason Douglas [07:14]

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Market Reactions: The Unexpected Treasuries Sell-Off

In an unusual development, U.S. Treasuries, typically seen as a global safe haven, are experiencing a sell-off. This trend indicates a shift in investor confidence, as foreign investors are possibly divesting from U.S. debt and reallocating funds to their home markets. Additionally, leveraged hedge fund positions in Treasuries are being unwound, exacerbating the decline in bond prices and the rise in yields.

Market Insights:

• Stock Markets: Japanese and Korean shares decline, European markets broadly lower.
• Treasury Market: Long-term U.S. debt prices fall, yields rise.
• Investor Sentiment: Growing skepticism towards U.S. assets, including Treasuries, stocks, and the dollar.

Notable Quote:
"The U.S. treasury market has been the safe haven market for the entire world for a very long time. That's being tested right now."
— Chelsea Delaney [08:27]

Delaney attributes the Treasuries sell-off to foreign investors repatriating funds and concerns over the U.S. economy's trajectory, including potential Federal Reserve responses to the economic uncertainty.

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Additional Headlines

Beyond the primary focus on tariffs and market reactions, the episode touches on several other significant news stories:

1. IMF Bailout for Argentina:

   • The International Monetary Fund has approved a new $20 billion loan to Argentina, supplementing an existing $40 billion bailout from 2018. This funding supports President Javier Milei's free-market reforms. The U.S., as the IMF's largest shareholder, plays a pivotal role in the approval process, with Argentina's alignment towards U.S. foreign policy being a strategic consideration.

2. U.S. Coal Industry Boost:

   • President Trump has signed executive orders aimed at revitalizing the coal industry, emphasizing coal's reliability and efficiency. Despite this, analysts predict that new coal plant constructions in the U.S. will remain unlikely due to the competitive pricing of renewables and gas-fired power plants.

   Notable Quote:
   "Pound for pound, coal is the single most reliable, durable, secure and powerful form of energy. It's cheap, incredibly efficient, high density, and it's almost indestructible."
   — Donald Trump [10:57]

3. Funding Freezes on Universities:

   • The Trump administration has frozen over $1 billion in federal funding for Cornell University and $790 million for Northwestern University amid investigations into alleged civil rights violations. Universities have reported receiving numerous stop-work orders related to national defense and cybersecurity research.

4. AP vs. White House Access Dispute:

   • A federal judge has mandated the restoration of the Associated Press's access to presidential events, citing violations of free speech rights. This follows the AP's lawsuit after being barred from the White House press pool over disagreements on terminology usage for the Gulf of Mexico.

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Conclusion

This episode of WSJ What’s News provides a thorough examination of the cascading effects of the U.S.'s new tariff policies on global trade, economic stability, and financial markets. With expert insights from reporters on the ground in Asia and Europe, listeners gain a nuanced understanding of the geopolitical and economic dynamics at play. Additionally, the unexpected shift in the U.S. Treasury market underscores the broader uncertainties permeating investor confidence amid escalating trade tensions.

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Produced by Daniel Bach and Kate Bullivant, with supervising producer Sandra Kilhoff.

Transcript

[Harvard Professional Development]

Move your career further faster in just two days with a Harvard Professional and Executive Development program. Advance your leadership skills, craft smarter business strategies, build your network and transform how you work and think to keep your career moving forward. You'll earn a certificate and can add Harvard to your resume with Harvard Professional and Executive Development. Learn more at professional dce harvard. Edu. Spotify.

[Luke Vargas]

President Trump cheers on his trade agenda as reciprocal tariffs kick in.

[Donald Trump]

And I really think we're helped a lot by the tariff situation that's going on, which is a good situation, not a bad. It's great. It's going to be legendary. You watch.

[Luke Vargas]

We'll look at how America's trade partners, central banks and investors are responding as U.S. treasuries sell off. Plus the rest of the day's headlines. It's Wednesday, April 9th. I'm Luke Vargas for the Wall Street Journal. Here is the AM Edition of what's news, the top headlines and business stories moving your world today. Reciprocal US tariffs on nearly 100 countries are officially in effect as of a minute after midnight. US Duties now stand at their highest level since before World War II, with the likes of China now facing tariffs of 104%. No region of the world is being spared, though many Southeast Asian nations are hardest hit, with Vietnam, Laos and Cambodia on the receiving end of tariff hikes north of 45%, moves likely to upend supply chains, dent growth forecasts and ripple through to consumers in the form of higher prices. And on such a consequential day for global trade, it's fitting. We've got a pair of Journal reporters with us this morning from opposite ends of the world. Kim McCrail is in Brussels and Jason Douglas is in Singapore. Jason, you have been putting out a number of big reports in recent days, reckoning with the enormity of the changes coming to the global trade system, a new reality that is now very much upon us.

[Jason Douglas]

Yeah, I think that's right. We're all trying to wrap our heads around what this means for globalization, what this means for the global trading system as it stands as it stood for 30 odd years. In the short term, I think the economic worry is recession. These recession fears are just getting bigger and bigger. I think you can see in stock markets across Asia that there's real concerns now about growth. We've seen central banks in New Zealand and India today cut interest rates. We're starting to see all sorts of little support packages being thrown to exporters in the region by countries like South Korea and their auto industry, Japan and Taiwan. There's real Anxiety in Asia now about what all this means for growth for sure. Yeah.

[Luke Vargas]

Speaking only Jason, about the impact to trade volumes, we saw a projection today from Capital Economics about Chinese exports and just there some potentially massive changes coming.

[Jason Douglas]

Yeah, that's right. We've seen some forecasts from investment banks and from consultancies iter suggesting that Chinese exports to the US could drop by as much as half in light of Trump's tariffs of 104% plus depending on exactly how they calculate it. We're already starting to see the yuan weaken. It's tightly controlled by the central bank and the government, but they are starting to let it weaken a little bit. It's a bit unclear if that'll be the start of a sustained depreciation or something more controlled. But you're right for all the economies out here, Japan, South Korea, Vietnam, these are all very heavily export dependent economies and the US is by far their biggest market. So they really are bracing for a great deal of disruption.

[Luke Vargas]

Kim, the tariff rates are really highest for many of the Asian countries that Jason was just mentioning. But the outlook fundamentally is no better in the eu, is it?

[Kim McCrail]

No, I think that's right. The US is an extremely important export market for Europe and in Europe's case it's 20% across the board tariffs as well as the auto tariffs of 25%, the steel and aluminum tariffs of 25%. The threat of future tariffs. That's a huge threat to the outlook for Europe.

[Luke Vargas]

Yeah, Future tariffs, including those that could hit pharmaceutical products. President Trump saying yesterday those levies could be coming very shortly.

[Kim McCrail]

Yeah. And pharmaceutical tariffs for Europe would hit Ireland very hard. Denmark is a major pharmaceutical hub for Europe. There's the potential for even more hits to the economy that could be coming.

[Luke Vargas]

Kim, these reciprocal tariffs are kicking in today despite some pretty active tariff diplomacy that's been undertaken by a number of countries. We actually heard from U.S. trade Representative Jamison Greer about this yesterday. He was testifying on Capitol Hill.

[Jamison Greer]

Nearly 50 countries have approached me personally to discuss the President's new policy and explore how to achieve reciprocity. And they've spoken with many members of the administration. Several of these countries, such as Argentina, Vietnam, India and Israel have suggested that they will reduce their tariffs and non tariff barriers in line with the President's policy. And these obviously are welcome moves.

[Luke Vargas]

Kim, we had the EU Parliament's Trade Committee chair on last Friday's podcast. He's actually part of the delegation in Washington this week offering concessions potentially, while also pledging to hit back against the U.S. take us into this strategy.

[Kim McCrail]

The EU is really trying to pursue a two pronged path in responding to Trump's tariffs. Their goal is to have negotiations and come up with some sort of deal that they hope would be beneficial for both the US and the EU at the same time. The feeling is that you're not going to make much progress on negotiations if you don't come at it from a strong position. And the view among EU officials is you need to have a stick waiting. So there'll be a vote today to approve a set of tariffs on specific US Products. And if that vote is approved, which is quite likely, then they would go into effect next week.

[Luke Vargas]

Kim, in terms of what the EU is voting on today, these countermeasures targeting the U.S. they're getting pretty granular, are they not, in terms of what they might be targeting or sparing?

[Kim McCrail]

Coming up with an agreement on which American products to go after is not the easiest thing for the European Union, which has 27 member countries, all sorts of different interests that they have to get everybody basically on board for something that in some cases might cause some pain. So they work to narrow down a list of products to go after all sorts of iconic American products. In some cases. We've got peanut butter. Chewing gum is actually on the list. So chewing gum will face a European tariff coming soon, likely. We've got boats, motorcycles, Harley Davidson would be affected by that one. Also interesting in this list is what they decided to. So we've got whiskey was on an original potential hit list for European tariffs that was taken off during the process. Same for American wines. And those are interesting because after the EU initially started talking about its retaliation about a month ago, President Trump responded very quickly with a threat of a potential 200% tariff on European alcohols, threatening specifically champagne, but saying that that could apply to other alcoholic beverages as well. That would be absolutely devastating for the wine and spirits industry in Europe. You can see some strategizing going on there where you still are hitting quite a lot of American products, but there's some care being taken to not overly antagonize.

[Luke Vargas]

Jason, in our final moments, how does that EU approach compare with what we've been seeing from some of the major Asian economies?

[Jason Douglas]

Well, if the EU is a carrot and a stick approach, then we have countries like Japan and South Korea that underneath the security umbrella that are mostly doing the carrot bit, they are basically making a beeline to the White House in the hope of getting a trade deal very quickly. And China thinks, at any rate, that it has a great big stick. And so it has retaliated hard and it will probably continue to do so. Both sides, US And China, just do not seem to be very close to negotiation at all at the minute, and neither side seems willing to back down.

[Luke Vargas]

Journal reporter Jason Douglas is in Singapore and Kim McRail is in Brussels. Jason, Kim, thank you both so much.

[Jason Douglas]

Thanks.

[Kim McCrail]

Great. Thanks so much, Luke.

[Luke Vargas]

Checking in on what those tariffs have meant for stock markets this morning. Shares in Japan and Korea slid ahead of the close, with European shares also broadly lower in midday trading. But most surprising is a sell off in the usual safe haven US Treasuries, which has been gathering steam instead of rising in response to the stock market sell off. Prices of long term US Debt are falling, driving bond yields higher. Markets reporter Chelsea Delaney says as the trade turmoil is making investors reconsider their U.S. investments.

[Chelsea Delaney]

The U.S. treasury market has been the safe haven market for the entire world for a very long time. That's being tested right now. So there is some indication that foreign investors are potentially selling Treasuries, taking that money back home, investing them in their home markets. There's also concern about the unwinding of some leveraged hedge fund bets on Treasuries, which regulators have been warning about this for quite a long time. There's just a lot of uncertainty around the US Economy right now and how the Federal Reserve is going to respond to that. So what we're seeing basically is investors becoming a lot more skeptical of U.S. assets across the board. That includes Treasuries, that includes stocks, that includes the dollar.

[Luke Vargas]

The investor nervousness around holding Treasuries has kicked up a notch ahead of government auctions of 10 year notes today and 30 year bonds tomorrow. Coming up, we've got the rest of the day's headlines including a big IMF bailout for Argentina and a white led effort to boost American coal. Those stories and more after the break.

[Harvard Professional Development]

Move your career further faster in just two days with a Harvard professional and executive development program. Advance your leadership skills, craft smarter business strategies, build your network and transform how you work and think to keep your career moving forward. You'll earn a certificate and can add Harvard to your resume with Harvard Program professional and executive Development. Learn more at professional DCE Harvard Edu. Spotify.

[Luke Vargas]

The International Monetary Fund has agreed to provide Argentina with a new $20 billion loan which if approved, would boost President Javier Milei's free market overhaul. The US is the biggest shareholder of the IMF, with the Trump administration holding significant influence over the approval of financing programs. Milei has praised Trump and drawn close to Elon Musk while moving to align Argentina's foreign policy with Washington. Argentina is the country most in debt to the imf, and the new loan would be on top of a current $40 billion bailout Argentina received following the 2018 financial crisis. President Trump has signed a series of executive orders aimed at expanding the production and use of coal in the US after years of decline.

[Donald Trump]

Pound for pound, coal is the single most reliable, durable, secure and powerful form of energy. It's cheap, incredibly efficient, high density, and it's almost indestructible.

[Luke Vargas]

Analysts and executives say it's unlikely new coal plants will be built in the U.S. though some operators may delay plans to wind down existing plants if Trump rolls back certain environmental regulations. Energy experts say any boost for coal is likely to be temporary, as renewables like wind and solar farms and gas fired power plants are significantly cheaper alternatives. Meanwhile, the Trump administration has frozen more than a billion dollars in federal funding for Cornell University and $790 million for Northwestern University. That is, according to a Trump administration official, and comes as the federal government is investigating both schools for alleged civil rights violations, part of a rapidly expanding crackdown on elite research universities across the U.S. a Northwestern University spokesman said the school hasn't received any official notification about the freeze, while the president of Cornell said in a letter that the university hadn't received information confirming the $1 billion figure but had received more than 75 stop work orders from the Department of Defense related to national defense, cybersecurity and health research. And a federal judge has ordered the White House to restore the Associated Press's access to presidential events, saying the decision to limit access violated the news organization's free speech rights. AP sued in February after its journalists were barred from the White House press pool because the outlet refused to change its style guidance for the Gulf of Mexico, which President Trump renamed the Gulf of America. The White House didn't immediately respond to a request for comment, and despite yesterday's ruling, AP journalists weren't permitted to join the press pool on Tuesday evening. And that's it for what's news for this Wednesday morning. Today's show was produced by Daniel Bach and Kate Bullivant, with supervising producer Sandra Kilhoff. And I'm Luke Vargas for the Wall Street Journal. We will be back tonight with a new show.

[Jason Douglas]

Until then, thanks for listening.